Porter’s Five forces model analysis in context of the Coffee Bar
The business plan refers to the formal statement of the business objectives to get a suitable outcome from a business. However, to get competitive advantages in a business industry analysis and the establishment of the strategy is crucial for any business (Jain et al. 2017). This study deals with the business planning of the Coffee Bar that is a coffee shop and situated in the Australia. The mission of such organization is to offer a unique and comfortable environment to their customer to be more socialized within a relaxing circumstance while taking coffee and food. For this reason, they offer free Wi-Fi and charging station to all of their customers to make them comfortable in their coffee house. This business planning is based on the IBIAS world industry research report that includes essential information about the coffee shop industry in the Australia. This report is beneficial to develop a business plan for the Coffee Bar according to the current market analysis of the coffee industry in Australia.
Porter five forces model is important to understand the nature of the industry in the global market. However to establish a business plan or to develop any strategy it is crucial for any organization to carry out an industry analysis to understand their current market position.
This element of the Porter five forces is one of the vital determinants to identify the profitability and the competitiveness of an organization in the global market (Rothaermel 2016). Any business organization has to compete strongly in a competitive environment that often leads the organization to face financial loss in their business. A huge number of competitors refer to the industry rivalry where the barriers are too high. According to the IBIS World industry report the cafe and coffee shop in the Australia has been growing rapidly since last five years and it is expected that this industry will grow by 7% over the coming five years. This ensures a huge competition for the Coffee Bar in their café and coffee industry in Australia. Hence, the competitors are equal size in this industry that brings a big challenge for the Coffee Bar in the Australian market.
Barriers to entry or the threat of new entrants determine the way which may be easy or may be difficult to the organization while taking entry in a market (Zhao et al. 2016). However, if an industry has more profit and few barriers to take entry in a new market then rivalry increases. Hence, it is difficult for the organization to grow their business in a market where more competitors are present. As per the IBIS World business report of the café and coffee industry, there is rapid emergence of the café shops in Australia from last five years. The number of the products in the café industry in Australia is growing quickly that ensures that this particular industry is now in the growth phase of the business. In the year 2012, the GDP of the growth of the café industry in Australia is 2.5%. This gives a clear indication of the emergence of the new entrants as high GDP attracts the investors in an industry. Hence, for the Coffee Bar it is important for them to make a high barrier for the new entrants otherwise their profit will start to fall.
Industry rivalry
Bargaining power of the buyers leads them to show their demand for the low price and high-quality product from any organization. However, the lower price is associated with the lower revenue and production of the high quality product increases the production cost. Hence, this situation leads an organization towards the lower profit (Moreno-Izquierdo et al. 2016). Consumers are too price sensitive that brings a big threat for Coffee Bar in their business. According to the IBIS world report, many Australian café and coffee shops has been started to develop new products to increase their sales. They focus on the preference of new consumer and produce new products to satisfy their customers. Hence, for the Coffee Bar, it is important for them to develop products based on the consumer’s discretionary income and the nature of lifestyle (Laari et al. 2017). This will be helpful for them to cope up with the increased bargaining power of the consumers. IBIS report of the café industry reveals that some customers treat the coffee as a luxurious substitute, which is affordable. Keeping this in mind Coffee Bar needs to set their product price that can lead them towards the profit.
Supplier’s bargaining power leads the supplier to claim high price for the low-quality materials (Safari et al. 2016). This leaves a direct effect on the profit of any organization as they have to pay more for the low-quality ingredients. Based on the IBIS report it has been found that there are many rising coffee shops in the café and coffee industry in Australia that ensures the high demand of the raw materials. As a result, there is less number of suppliers in comparison to buyers. This is a big threat for the Coffee Bar as such growing number of coffee shops in the single market leads them to pay the high price for the low-quality raw materials, which affects their economic stability.
Introduction of the alternative products by the organization is significant for the innovator while it may bring the threat for the other organizations (Hu and Yang 2016). IBIS report shows that there are many competitors in the Australian café and Coffee industry and they try to develop new innovative products according to the demand of the customers. However, is an organization offers a good quality product with low price then it may bring a threat for the Coffee Bar in the Australian market. Hence, by differentiating the product Coffee Bar can achieve a unique position in the Australian café industry.
Barriers to entry
The value proposition is a marketing statement that is used by the business organization to identify that why the customer will purchase their products (Ko and Liu 2017). According to the mission of Coffee Bar, they want to provide a comfortable environment to their customers while purchasing their products. For this reason, they offer free Wi-Fi network to their customers to be more socialize while enjoying the coffee and food. This focuses on their value proposition as providing such opportunity they will able to sell their product and to attract their customers. In order to create a successful value proposition use of Porter’s generic strategies will be helpful for such business.
Porter generic strategies include cost leadership, differentiation, and focus that are beneficial for a firm to determine the situation of a firm whether the profitability of the firm is below or above of the industry average (Rothaermel 2016). Cost leadership leads the organization to become a low-cost producer in the global world. Sources associated with the cost advantages vary based on the industry structure. In the context of Coffee Bar, they want to expand their business as it is one of the important objectives of their business. Hence, cost leadership will lead the organization to cut their operation cost, which enables them to increase their profit as well to expand their business.
Differentiation strategy focuses on the product differentiation. However, product differentiation makes a firm unique in the industry and the products are valued by the consumers (Menon and Yao 2017). In order to build the customer base that is the prime objective of Coffee Bar they need to offer unique service r product to the customers. This will enhance the belief of the customers towards their service, however, offering free Wi-Fi in the cafe is a unique idea of Coffee Bar to develop their customer loyalty and maintain value proposition.
The focus strategy includes cost advantage and the differentiation in the target audience (Haas and Stuebiger 2017). However, by using such focus strategy Coffee Bar will be able to identify their target segment in the global market. This is beneficial for them to gain competitive advantages as based on the demand of the target market this organization will be able to develop their service and products.
A strategic alliance is an effective alternative strategy to achieve the competitive advantages in the international market (Bayraktar et al. 2017). However, these alliances can be made between two or more industries working in the same field. In the context of Coffee Bar, this organization needs to be careful and should not cross the limit between the collusion and the strategic alliances. However, strategic alliances can be applied by the business to utilize the resources that enable the firm to expose at the point of expense in comparison to the other competitors, which is effective to obtain competitive advantages.
Bargaining power of the customers
Conclusion
The above piece of work focuses on the business planning of the Coffee Bar according to the information of IBIS report. Hence, it has been found that industry analysis is crucial for the business organization while developing a new business plan. According to IBIS report, there is a huge number of growing café shops in the Australian market that highlights on the huge competition. Therefore, high GDP of café industry in Australia ensures the threat of new entrants. Apart from this the Porters five forces and Porter generic strategies are applied by this firm to achieve sustainable growth in the market.
References
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